Correlation Between Small Company and Direxion Monthly

Can any of the company-specific risk be diversified away by investing in both Small Company and Direxion Monthly at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Small Company and Direxion Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Pany Growth and Direxion Monthly High, you can compare the effects of market volatilities on Small Company and Direxion Monthly and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Small Company with a short position of Direxion Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Direxion Monthly.

Diversification Opportunities for Small Company and Direxion Monthly

0.44

Correlation Coefficient

Small Company  Direxion Monthly

Very weak diversification

The 3 months correlation between Small and Direxion is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Direxion Monthly High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Monthly High and Small Company is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Small Pany Growth are associated (or correlated) with Direxion Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Monthly High has no effect on the direction of Small Company i.e., Small Company and Direxion Monthly go up and down completely randomly.

Pair Corralation between Small Company and Direxion Monthly

Assuming the 90 days horizon Small Pany Growth is expected to generate 7.22 times more return on investment than Direxion Monthly. However, Small Company is 7.22 times more volatile than Direxion Monthly High. It trades about 0.36 of its potential returns per unit of risk. Direxion Monthly High is currently generating about 0.09 per unit of risk. If you would invest  1,121  in Small Pany Growth on September 5, 2024 and sell it today you would earn a total of  548.00  from holding Small Pany Growth or generate 48.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Small Pany Growth  vs.  Direxion Monthly High

Small Pany Growth

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Small Company showed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Monthly High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Monthly High are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Direxion Monthly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Company and Direxion Monthly

The main advantage of trading using opposite Small Company and Direxion Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Direxion Monthly can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Direxion Monthly will offset losses from the drop in Direxion Monthly's long position.

The idea behind Small Pany Growth and Direxion Monthly High pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.